01 Hermawan Juniarto & Partners Member of Deloie Legal Network Indonesian Legal Talking Points May 2020 Determinaon of Corona Virus Disease 2019 (COVID-19) Spreading Non-natural Disaster as a Naonal Disaster and Its Implicaons with Force Majeure Event and Contractual Performance Presidenal Decree No. 12 of 2020 on Determinaon of Corona Virus Disease 2019 (COVID-19) Spreading Non-natural Disaster as a Naonal Disaster (“Decree 12/2020”) On 13 April 2020, President Joko Widodo issued Decree 12/2020 as one of the follow-ups to the statement of World Health Organizaon (WHO) which sets outs COVID-19 as a global pandemic. Law No. 24 of 2007 on Disaster Management (“Law 24/2007”) defines Disasters as events or series of events which threaten and disrupt public’s lives and livelihood, caused by natural and/or non natural factors, as well as human factors, resulng fatalies, environmental damage, loss of property and physiological effects. COVID-19 Indonesian Legal Talking Points Presidenal Decree No. 12 of 2020 Non-natural disasters are defined as disasters caused by non- natural events or series of events such as technological failure, epidemic, and disease outbreak.
Determination of Corona Virus Disease 2019 (COVID-19) Spreading Non-natural Disaster as a National Disaster and Its Implications with Force Majeure Event and Contractual Performance
Presidential Decree No. 12 of 2020 on Determination of Corona Virus Disease 2019 (COVID-19) Spreading Non-natural Disaster as a National Disaster (“Decree 12/2020”)
On 13 April 2020, President Joko Widodo issued Decree 12/2020 as one of the follow-ups to the statement of World Health Organization (WHO) which sets outs COVID-19 as a global pandemic.
Law No. 24 of 2007 on Disaster Management (“Law 24/2007”) defines Disasters as events or series of events which threaten and disrupt public’s lives and livelihood, caused by natural and/or non natural factors, as well as human factors, resulting fatalities, environmental damage, loss of property and physiological effects.
COVID-19 Indonesian Legal Talking PointsPresidential Decree No. 12 of 2020
Non-natural disasters are defined as disasters caused by non-natural events or series of events such as technological failure, epidemic, and disease outbreak.
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Decree 12/2020
Roles of Regional Governments
COVID-19 as a National Disaster
Handling of COVID-19 by the Task Force
With reference to the above explanation on Law 24/2007, Decree 12/2020 sets out the non-natural disaster caused by the spreading of COVID-19 as a national disaster.
The handling of the national disaster shall be performed by the authorized task force under Presidential Decree No. 7 of 2020 on Task Force for the Handling of Corona VirusDisease 2019 (COVID-19) (as amended by Presidential Decree No. 9 of 2020).
Head of Regional Governments as leaders of the task force in their respective regions shall, with regards to setting up regional policies, consider the policies set out by the central government.
Main Provisions
Can a National Disaster be considered as a Force Majeure Event?
Disclaimer:The below is generic information, which may or may not, be entirely applicable to your case (as contracts and agreements may differ on a case-per-case basis and subject to the governing law of such contracts as well).
In general, force majeure events are defined as circumstances not within the reasonable control, directly or indirectly, of the party affected, but only if and to the extent that such circumstance, despite the exercise of reasonable diligence, cannot be prevented, avoided or removed by the affected party.
Example of Force Majeure Events:• Acts of rebellion, riot, civil commotion, strikes of a political
nature• Acts or campaigns of terrorism, or sabotage of a political nature• Nuclear, chemical and/or biological contaminationStrikes or other industrial actions• Acts of war (whether declared or not), invasion or act of foreign
enemy• Extraordinary lightning, fire, earthquake, epidemic or
pandemic, tsunami, flood, storm, cyclone, typhoon, tornado or other natural calamity, etc.
Our Views: Subject to the terms of relevant contracts/agreements, a “national disaster” is likely able to be considered as a force majeure event, as the occurrence of such national disaster is beyond reasonable control of the contracting parties, cannot be prevented and/or avoided, as well as supported with the issuance of decrees and/or regulations by the government (e.g. Decree 12/2020).
However, it does not necessarily mean that a party can directly terminate the contracts/agreements or neglect its contractual obligation as such matter will need to be reviewed/analyzed further based on the terms of such relevant contracts/agreements.
Notes: Please note that NOT all contracts/agreements contain force majeure provisions given their nature and the risk sharing profile regime that is adopted in such contracts/agreements (e.g. it is quite rare in a loan/facility agreement to contain force majeure provisions as lenders do not necessarily want to assume this risk and pass such risk to the borrowers, which may later on be covered by insurance, security packages and other commitments). In addition, it is advisable also to note potential cross-default which may occur under related contracts/agreements when an underlying contract/agreement is affected by force majeure (e.g. in a typical project finance documents, the main facility agreement would normally provide certain rights for the lenders towards the borrowers when the underlying project documents being affected by force majeure – such as when the project documents suspended/terminated, it will provide rights for the lender to call default, accelerate repayments, enforce security, etc.)
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Generic Approach for Force Majeure Events in Agreements
Disclaimer:The below is a generic approach on force majeure/FM provision applied in certain agreements used in Indonesian market, that may be applied to a COVID-19 situation (may not be applicable to your case, as contracts and agreements may differ on a case-per-case basis and subject to the governing law of such contracts as well).
• The party affected by COVID-19/ national disaster situation (“Affected Party”) should be able to demonstrate that such situation falls under the definition of force majeure/FM event based on the terms of the agreement
• The Affected Party should assess whether such FM event (COVID-19/national disaster situation) materially affects the performance of their obligations under the terms of the agreement
• Based on the materiality assessment of such FM event’s effect to the performance of the obligation of the Affected Party, such Affected Party notify the other party (“Unaffected Party”)
• The period of notification defers from one agreement to another, however, it shall be the principle that such notification is made at the soonest after occurrence of FM event
• By virtue of applicable mechanism in an agreement, the Affected Party and Unaffected Party shall discuss how to overcome/take action regarding the occurrence of such FM event, within certain period of time as provided for in such agreement
• Results: - Waiver of the affected obligation – and to some extent, any payment made against such obligation can be suspended
- Amendment of agreement to cover adaption of situation resulting from the occurrence of such FM events
- If there is prolonged force majeure event, the contracting parties may decide to terminate the agreement, with some carve-out on the remaining rights and obligations (e.g. termination/buy-out formula or other matters)
- Non-affected obligations shall still be performed accordingly without any disruption
Occurrence of FM Events Notification of FM Events Results of FM Events
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Key Takeaways – Practical Considerations
With reference to previous elaborations, below are several key takeaways and practical considerations which you may need to consider:
Associated RisksThe parties to acknowledge that there are risks associated to the current national disaster/COVID-19 situation which may affect performance of their contractual obligations, such as:• Penalties• Default• Acceleration of unpaid obligations• Enforcement of secured assets• Delay of counter-performance• Increase of expenditures• Employee-related issues (layoffs, redundancy)• Project buy-out• Temporary takeover• Supply-chain disruption• Capital/ margin call• Cross-default• Contract suspension• Contract termination• Litigation/ arbitration
Possible Follow-up ActionsThe following are some possible follow-up actions which may be implemented:
Review contracts/agreements in order to understand applicable force majeure regime, procedural matters which needs to be followed (e.g. notification, remedial actions) and prescribed contractual consequences thereof
Identify and assess direct and indirect risks, costs and exposures which may be incurred (including those arising from other related contracts/commitments)Ensure that the Affected Party has performed its obligations which are not affected by the force majeure event
Engage communication/discussion with other relevant stakeholders (e.g. governmental agencies, subcontractors, financiers, and employees)
Engage communication/discussion with the Unaffected Party/counterparty in accordance with any prescribed procedural matters set out in the agreement to come up with agreed remedial actions (e.g. contract amendment)
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Obtain multi-disciplinary advice to formulate appropriate course of actions and set up a specific task force
Legal
Consulting
Assurance
Risk Advisory
Financial
Tax
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For any enquiries with respect to this material, please contact the following members of Hermawan Juniarto & Partners’ Indonesian COVID-19 Legal Response Team:
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